Higher funding costs, rising competition may weigh on Muthoot Finance

Earnings growth in FY27 will depend on loan book expansion rather than margin expansion unlike in FY26 when yields benefited from several one-off factors. Read more: Closing auction keeps traders on edge as divergence persists The stock has lost around 19% since May 14 when the company declared the March quarter result. Given the pressure on profitability, the stock may remain range bound in the short term though it trades at a slightly lower Price-to-Book (P/B) of 2.9 compared with the three- and five-year average multiples of 3.2 and three respectively. The management expects gold loan yields to stabilise at around 18-18.5% over the coming quarters, below the elevated 19.6%-20.7% levels in FY26. The moderation in yields has begun to erode margins. Net interest margin (NIM) fell to 10.4% in the June quarter compared with 13.4% in the previous quarter and 12.2% in the year-ago quarter. In the previous year, the company's performance benefited from unusually high recoveries and receipts from asset restructuring companies. In the current fiscal year, falling loan yields may not find any support from funding costs either, as borrowing costs are unlikely to soften and may even rise depending on the RBI policy. With more companies and banks looking to increase their share of gold loans, gold loan financiers may have to cut interest rates for customers which may affect profitability. Motilal Oswal Financial Services expects the industry to witness a brief period of aggressive customer acquisition, leading to persistent pressure on pricing, spreads and margins. However, the company's management believes that its established customer base and brand should help preserve market share and loan growth. Analysts expect Muthoot Finance's earnings growth to moderate over the next few years, with key financial metrics projected to expand at a slower pace than in the past. (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price